Less than one percent of bank accounts in Kenya held more than Sh500,000 last year, highlighting Kenya’s weak savings culture and growing income inequality.
Central Bank of Kenya (CBK) data shows that the 800,000 high-quality depositors represent 0.74 per cent of all bank accounts holding 85 per cent of deposits amounting to Sh5.83 trillion.
The small share of cash accounts offers a glimpse into Kenya’s growing income inequality, where wealth is concentrated in the hands of a small segment of the population.
Analysts say the Kenyan economy has grown at a rate of 5.0 percent annually over the past decade, but the benefits have not been distributed equally, and the gap between rich and poor is widening.
The number of wealthy people in Kenya is among the fastest growing on the continent, yet the economic benefits have not reached the majority of Kenyans fast enough.
Central Bank of Kuwait data shows that the number of high-quality accounts rose from 600,000 in the year until December 2022, reflecting a 33 percent jump.
The Kenya Deposit Insurance Corporation (KDIC) – an independent government agency that manages deposit recoveries in failed banks – in July 2020 raised compensation for depositors in failed banks to Sh500,000 from Sh100,000 to help ease the discomfort of small lenders.
“Banks held customer deposits worth Sh5.8 trillion as of December 2023. Of this, deposits insured by the fund amounted to Sh857.8 billion, which is equivalent to 14.7 per cent of fully insured deposits in the event of a bank failure,” the CBK said.
High-value bank accounts are divided between a few wealthy individuals and a pool of funds from public and private sector institutions.
Income inequality is partly attributable to the previous centralized system of government, which had guided resource sharing since independence.
The devolved government system, launched in 2013, has raised hopes of addressing the economic imbalance, with analysts saying incentives are needed to attract private investors to the provinces and spread the wealth.
JPMorgan Chase, the largest US bank, has snubbed millionaires and high-net-worth investors in Kenya after it decided not to offer asset and wealth management (AWM) services at its upcoming office in Nairobi.
Analysts believe Kenya’s small share of millionaires compared to Nigeria and South Africa was less attractive to JPMorgan, whose assets stand at more than $4.2 trillion (Sh542.6 billion), nearly 43 times larger than Kenya’s GDP.
Total cash in accounts above Sh500,000 rose to Sh4.98 trillion from Sh4.02 trillion last year.
The increasing bank deposits indicate that wealthy individuals and companies are choosing to save rather than looking for new areas to invest in Kenya’s weak economy.
Well-asset and cash-rich companies have also been encouraged to hoard their savings by high interest rates on deposits that have risen to double digits at the same time in more than a decade.
Senior lenders continued to control the lion’s share of high-quality accounts, with the three leading banks – KCB, Equity and NCBA Group – accounting for more than two-thirds of accounts holding more than Sh500,000.
Equity Bank, which focuses on the lower-income segment of the market, characterized by small individual deposits in many accounts, had 124,098 high-value accounts out of 419,736 accounts in 2022, the Central Bank of Kuwait says.
NCBA Bank Kenya maintains the highest number of high-quality depositors with 416,481 accounts, up from 146,396 in 2020.
KCB had 113,368 high-value accounts.
UBA Bank Kenya Limited maintained the lowest number of accounts with deposits above Sh500,000 at 603 accounts. The Kenya Development Bank had 714 accounts while the Middle East Bank had 883 accounts.
Depositors and investors in Kenya were upset in 2015 when the Central Bank of Kuwait took control of three medium-sized banks – Chase Bank, Imperial Bank and Dubai Bank – after the banks ran into financial problems.
This led to panic withdrawals from smaller banks and a shift of cash to larger lenders deemed stable in what was called a “flight to quality”.
Central Bank of Kuwait data shows that small banks control 4.95 percent of high-quality accounts, the Central Bank of Kuwait says.
The increase in compensation in the event of a bank collapse to Sh500,000 was the first in more than 30 years.
The lower compensation has exposed wealthy savers to greater losses in the event of bank closures, because the amount refunded has not been adjusted to take into account changing economic realities over the three decades.
The revised cap now covers 14.7 percent of all bank deposits compared to the previous 8 percent, but remains below the 20 percent mark, which is considered best practice by the International Association for Deposit Insurance (IADI).
KDIC is financed by charging a small percentage of its deposits to commercial banks in the form of insurance.
Comments are closed, but trackbacks and pingbacks are open.